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The Pari Passu Posse Arrives. (And Paul Singer Goes to Space.)

posted by Mark Weidemaier

Shutterstock_161010305The amicus briefs in support of Argentina's petition for certiorari are in (and most can be found here). As Anna notes, Mexico's brief may be the most pertinent, as that country is ideally positioned to refute the false CACs-solve-everything premise underlying the Second Circuit's decision. The others cover a range of issues, although they mostly stay on familiar turf. I'll give a few of the highlights below the jump.

But first: Yesterday, NML filed a suit in California federal court to execute on rights in a contract between CONAE (Argentina's National Space Activities Commission) and Space Exploration Technologies Corp. (SpaceX). Basically, SpaceX has agreed to launch satellites for Argentina from Vandenberg Air Force Base in California. NML wants those rights sold to the highest bidder, with the proceeds used to pay down Argentina's debt to NML. More from Bloomberg here.

The timing is curious. I doubt NML's lawyers worked too hard to put this lawsuit together - they filed a similar one back in 2011. The launches aren't imminent, so there's also no obvious rush. Perhaps the exotic collection suit will divert attention from the amicus briefs. (See, it's working!) If so, it's a diversionary tactic worthy of those masters from Little Britain.

Anyway: the amicus briefs. As I mentioned, they don't raise any especially novel arguments, but they do emphasize that other governments think the case is important. That can only help Argentina's cause, as many of the traditional arguments in favor of Supreme Court review (such as a disagreement among the federal courts of appeal) are missing here.

On the merits, the briefs highlight some of the least defensible parts of the Second Circuit's ruling. Recall, for example, that the court gave a rather offhand dismissal of the argument that the injunction should not extend to non-US financial institutions. The court reasoned that these institutions could always object when summoned to defend themselves in contempt proceedings. Euroclear's brief pulls no punches, calling this "frivolous at worst." The district judge has already made clear that foreign entities are bound by the injunction, and Euroclear makes the obvious point that only a fool "would risk contempt based on the assumption that the Order does not mean what it says."

Nobel Laureate Joseph Stiglitz makes an appearance, too, primarily to highlight the potential implications of the Second Circuit's decision for future restructurings. As he notes, in a well-functioning market, investors are compensated for default risk through higher yields, but the logic of the Second Circuit's decision is that "holdouts would receive high pre-default returns while never actually bearing the risk of default." This argument perhaps proves too much. It's probably accurate as a description of what happened here, when the Second Circuit arguably retroactively eliminated a risk that was priced into the loan. But if the availability of NML-style injunctive relief really ensured repayment, the default premium would disappear in future loans. Of course, no one thinks strong enforcement rights can completely eliminate the risk of default. The broader question is whether sovereigns should be able to commit ex ante to a messy, inefficient restructuring process (and whether the pari passu clause represents such a commitment). Stiglitz argues not - primarily because messy defaults can have massive spillover effects. These are standard arguments, but it can't hurt Argentina to have someone like Stiglitz making them

More to come on this I'm sure. The response to the petition for certiorari is due May 7. 

*Planet Earth image courtesy of Shutterstock

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